“If a contractor keeps working without a license after receiving a cease-and-desist order, it can bring severe penalties. But that doesn’t necessarily stop them from working,” says construction attorney Bill Gschwind. (Staff photo: Bill Klotz)

Legal Matters: May I see your license, please?

Last December, when a Bloomington homeowner’s kitchen remodel was badly botched by a local contractor, the contractor was not only hit with sanctions and fines, but also criminal charges, according to a Star Tribune story.

What was the tipping point between fines and the threat of jail time? The contractor’s lack of a license.

Unlicensed construction work is a steady, nagging problem for the state’s construction industry overall. While dodging licensing requirements is generally seen as an infraction committed by small contractors who persuade homeowners to take shortcuts on small projects, reputable contractors and subcontractors can find themselves in hot water if they don’t follow the licensing requirements specific to their industry.

“It’s very infrequent that I run across a client that isn’t properly licensed,” said Joe Christensen, a construction attorney and partner at Christensen & Laue in Edina. “The [Minnesota] Department of Labor & Industry is pretty firm about pursuing contractors who work without a license. If a consumer has a claim that gets awarded through the fund, the contractor can lose his license. It just isn’t worth it.”

Residential contractors have been required to carry a license in Minnesota since 1992. Previously they were regulated by local governmental bodies. A licensing program was put in place as a consumer protection measure, along with the state’s Contractor Recovery Fund, which compensates homeowners who are the victims of misconduct by licensed contractors.

“Particularly in the residential arena, there’s been a drift more toward the recovery fund,” said Christensen. “The licensing fees have gone up, and a portion of those fees have gone toward the consumer recovery fund.”

Homeowners who are the victims of unlicensed contractors can complain to the state, but in most cases, any monetary recovery will have to result from a civil lawsuit against the contractor.

Gap between commercial and residential

Commercial general contractors are generally exempt from state licensing requirements, as are practitioners of a single special skill, such as excavation specialists. Roofers, remodelers, installers of manufactured homes and many subcontractors (including plumbers, electricians and HVAC specialists) are also required to have a license in Minnesota.

Lino Lakes construction attorney Bill Gschwind said the lack of licensing requirements for commercial contractors isn’t inherently troublesome because a commercial contractor who skirts the law is likely to be seen as a bad risk by owners with a lot more at stake than a new kitchen. But a commercial contractor who dabbles in residential work can run into trouble if he doesn’t maintain a license.

“A general contractor doing commercial work doesn’t have to be licensed, but if that same person builds a house, they have to be licensed,” said Gschwind. “That’s one reason why you don’t often see commercial guys moving into the residential arena, although occasionally residential guys will do some commercial work.”

A Minnesota construction license must be applied for on a company’s behalf by the owner or managing employee of the company. The applicant must take a written exam containing 110 multiple-choice questions about construction code issues.

The cost of a license, which includes a fee that goes to the state Recovery Fund, is on a sliding scale dictated by the company’s revenue. The total cost of a two-year license ranges from $690 to $890, according to the Department of Labor & Industry’s website.

While seen as a worthwhile risk by some, the cost of not having a license can be heavy. An unlicensed contractor will be cited by the state, fined up to $10,000 and asked to desist from any further work until they are licensed. The state issued about 100 cease-and-desist orders to unlicensed contractors last year.

Checking on the license status of a contractor is easier than ever thanks to a searchable database on the DLI’s website, meaning the risk of discovery is greater than ever for unlicensed contractors.

“A sanction almost always comes with fines,” said Gschwind. “If a contractor keeps working without a license after receiving a cease-and-desist order, it can bring severe penalties. But that doesn’t necessarily stop them from working. In fact, if there’s no complaint filed, they’ll probably just keep doing it.”